Sunday, December 19, 2010

Once again, since apparently I have nothing better to do, I was surfing and came across this interesting article. Since the advent of the Great Recession, one of the factors that has kept commenters commenting and economists scratching their heads has been the intransigence of the United States unemployment numbers. No matter how much quantitative easing (i.e. paper money) Mr. Bernanke throws at the economy and no matter how much he drops interest rates, people who are out of work seem to stay out of work and companies just don't seem to be hiring. This has to really annoy Mr. Bernanke; without jobs, people are unlikely to borrow too much money, buy too much house and otherwise spend way over their heads. That leads to stagnancy in the economy and could possibly bring about the central banker's worst nightmare; the dreaded spectre of deflation. Just think of the sleep that would be lost by central bankers around the world if prices would actually drop! Why consumers would stop spending and wait until prices became more attractive before they parted with their hard-earned dollars.

Before I go into what the paper outlines, let me briefly give you the most recent unemployment statistics for the month of November 2010 from the Bureau of Labor Statistics (BLS). The unemployment rate (U3 rate) edged up 0.2 percentage points to 9.8 percent and there were 15.1 million unemployed Americans. There were 6.3 million long term unemployed (at 27 weeks or longer) and they made up 41.9 percent of the total unemployed. According to the Shadow Government Statistics (SGS) website, the broadest measure of unemployment (U6) stood at 17 percent and the SGS Alternate unemployment rate (includes those who are long-term discouraged workers) stood at nearly 23 percent. Now that we have the numbers in perspective, we'll go back to the "Labor Underutilization..." paper.

In their paper, Sum and Khatiwada examine which American workers have been most affected by the Great Recession. From BLS statistics, we can readily see which age group, gender or race have the highest unemployment rates. For example, the unemployment rate of African American males over 20 years of age was 16.7 percent in November and that the unemployment rate for laborers that did not have a high school diploma was 15.7 percent in November compared to 5.1 percent of the work force that had a Bachelor's degree or higher. BLS statistics show us that, generally, if you have a poorer education and are Black or Hispanic, you are more likely to suffer from unemployment. What we don't see from government statistics is an analysis of unemployment and underemployment (those who are working part-time for economic reasons) by income group/socio-economic status. As background information, on average, underemployed workers only get 22 to 23 hours of work per week compared to 43 hours per week for full-time workers.

Sum and Khatiwada took all of the household incomes of the United States for the year 2008 and divided them into 10 groups or deciles with the bottom decile consisting of households making an annual pre-tax income of $12,160 or less and the top decile making an annual pre-tax income of $138,800 or more. Here's how the deciles break down for 2008 and their accompanying incidence of underemployment for the October to December 2009 period from the United States Census Bureau Current Population Survey (CPS) data for that period:

Decile Income Range Incidence of

Underemployment

First $12,160 or less 20.6

Second $12160 to $20725 17.2

Third $20725 to $29680 12.7

Fourth $29680 to $39000 8.3

Fifth $39000 to $50000 6.1

Sixth $50000 to $63000 5.4

Seventh $63000 to $79100 4.4

Eighth $79100 to $100150 3.6

Ninth $100150 to $138700 2.5

Tenth $138700 or more 1.6

Missing 5.3

Notice that the incidence of underemployment falls very steeply as income level rises. By the time respondents reached the sixth decile, unemployment is negligible especially if one subscribes to the theory that full employment is reached when unemployment stands between 4 and 6 percent. The underemployment level at the lowest income level is nearly 13 times that at the highest income level. This tells us that the burden of underemployment in the United States has been borne disproportionately by those in the lowest income levels. This order of magnitude higher rate of underemployment at lower socio-economic groups impacts the growing division between the haves and the have-nots in American society and at least partly explains the growing socio-economic polarity in the United States.

Sum and Khatiwada go on to calculate how income level relates to hidden unemployment, those workers who wish to work but are not actively looking for work in the survey period so are not counted as unemployed by the Bureau of Labor Statistics. The authors classified these workers as the under-utilized pool of labour; the sum of the unemployed, underemployed and the hidden unemployed. Although the income decile ranges changed slightly to accommodate the data from the fourth quarter 2009 CPS survey data (lowest decile is $12,499 or less and highest decile is $150,000 or more), the conclusion is similar. The lowest income decile suffered from a total unemployment rate of 30.8 percent and the underemployment rate was 20.7 percent. This compares to 3.2 percent unemployment and 1.6 percent underemployment at the highest income decile as shown in this chart:

Using this analysis, the rate of total unemployed at the lowest income group is the same or higher than the unemployment level that was experienced by all workers during the Great Depression. Not only do the lowest income Americans suffer from the highest unemployment rates, they also suffer from the highest underemployment rates.

The impact of the Great Recession has and continues to vary greatly with the socio-economic status of the American workforce. Workers at the top and bottom of the income ladder have had vastly different experiences during the Great Recession of 2008 - 2009 with workers in the upper income echelons feeling minimal impact on their employment status compared to those at the lower levels. It will be interesting to see how long it takes for the lowest deciles to benefit from an economic upturn should one take hold.

13 comments:

Its called the wealth effect.When you print $12T to inflate asset speculation, you get asset bubbles that make those who own those assets much wealthier.The poor do not so any wealth appreciation, because they generally do not have assets to appreciate. No goods or services are produced.This creates short term improvement at long term costs.

I'm not sure this trend will continue, due to the offshore outsourcing of highly paid workers. However, the curve makes sense to me. The higher paid workers generally have more highly sought skills, and have the experience and education as well. The US is moving very quickly toward a knowledge-worker culture, so those at the lower end of the spectrum will generally be out of luck and forced into retail or BACK into day laborer jobs currently held by immigrants. From an economic perspective, it's disconcerting what the effect of millions of unemployed or unemployable people will do to the economy. My guess is that our taxes will become similar to many European countries. Our economy will basically consist of three different types: highly paid management, offshore resources for everything else, and millions of unemployed being taken care of by the taxes of the wealthy. At that time it will be too late, but it will be clear that sending jobs to India was a short sighted plan to boost profits and make a small number of people richer. But they will eventually pay that back with their taxes when all of the disenfranchised are in poverty.

The present problem of un/under-employment of the least skilled and of those in least demand by employers, is the surfacing of a major growing trend in the world's economy. It is rooted in the growing automation of all work. Computers and robots will do more and more of the work necessary for the support of the human race.

The well-to-do, who own the means of production, will enjoy increasing wealth. Those who have no asset interest in the world economy will be marginalized and discarded in ever increasing numbers.

This is the root of the present economic crisis, but it is not yet recognized as it has just been described.

As time goes on, the sidelined population will be seen as a drag on the economy and the wealthy of our society will realize that there will never again be a place for all the un/under-employed. This will lead to the wealthy creating situations through actions and inactions that reduce the “Uns” in large numbers.

Reduction methods used to deal with the “Uns” will be the old, tried and true methods of the past: the unrestricted growth in economic privation; starvation/famine; increased death due to lack of medical care; and wars and conflicts precipitated through various types of action and inaction by the wealthy and powerful.

As the competion for resources and employment opportunities increases, money, connections, power, and education will be ever more important tools in helping one find employment as fewer and fewer real productive jobs are left. Day by day, there will simply be fewer jobs that have not been taken over by machines.

The consequences of this growing automation have been largely ignored up till now. Most attention has been paid to the smaller aspects of the overall problem. But, with the advent of the top 5 or so percent of the wealthiest people in the U.S. owning 85 percent of the assets of the country, the trend now begins to stand out in clearer relief.

In a sane and compassionate society, the obvious solution to this problem is to shift to the use of units of production as the basis for the U.S. income tax system instead of it’s present form, thereby shifting the payment responsibility to the production of the machines. And, the wealth created by the machines that is received as tax should be in part, redistributed to all the people of the country. If this does not occur, then the un/under-employed will simply have no way to provide for themselves.

This will be the most important crisis facing the United States and the world this century as it becomes clear that the present unemployment situation is not going to get better for those who have already been cut off from any employment opportunities.

It is likely that this issue, “taxing the output of the machines for the support of those who have lost their employment opportunities to the machines,” will likely be decided in the streets over the next several years. This is so because, as unemployment becomes permanent for those at the bottom of society, the “Uns” will become more desperate, angry and violent, when they realize that the wealthy are not going to help them with out a fight.

The United States is no longer a manufacturing based country. The decline of manufacturing in this country has erased the opportunity to enter the work force by those that do not have the money or the desire to continue on to college. Manufacturing used to provide a livable wage and the ability to provide for a family. The majority of what is available now is minimum wage work.Our High Schools no longer offer shop classes like carpentry/woodworking,automotive repair, or machine shop. And if they do they are hindered by the lack of funding to those classes because of the so called lack of interest. If a young person wishes to learn a trade they are now directed to Colleges for profit that put the individual in great monetary debt at the end of the so called education process. Moving manufacturing out of the United States has taken away the opportunity for young people to enter the workforce to become productive members of society.

As Martin Luther King reminded his followers; you get to vote once every 2 or 4 years for change, but you have power each day; by how you spend your hard earned money. Don't like conglomerates, wealthy oligarchies, corporate titans, then don't buy their products/service. Follow money and you'll find where a persons' heart is.

Want proof: Montgomery, Alabama bus boycott by American blacks forced bus company to drop its racist seating policy in two weeks. Why, they were losing money. Economics trumpets all.

This article is misleading. You're implying that rich people keep their jobs, and poor people lose them.... but to back it up, you use some statistics that show that people who keep their jobs tend to become more wealthy than those who lose them. Not only is that stating the obvious, it also doesn't prove your initial statement. Now, it would be more interesting, if possible, to see a study comparing income/status 5 years ago, and income/status of those same people now. That could prove/disprove the notion that rich people stay employed and the rest of us don't.

I don't see this as rich v. poor, but rather non-skilled v. skilled/knowledged. As some have pointed out the people who are earning more or are in more secure employment are "knowledge workers." This is problematic since it doesn't account for the variety of people that exist in society. Think about the high school class room, some are smart, some are hard workers, some work enough to get by, some slack off. Some people are good with knowledge others are better with tangibles. To outsource skills that we have in country is bad work force development, which created a bad foundation for future job markets. A person should be able to get a viable job out of High School to provide for a family. If the quality of education is in doubt then augment high school with an associate's degree. Not every person in the country should have to have a 4 year university education as that's not relevant to most occupations. We need as a nation to bring back full time non-skilled and trade jobs (both traditional and high tech) to have the workforce reflect actual skills present in our nation's population. Otherwise we'll be stuck in situation where all non-skilled work and certian skilled work is done out of country where our regulations have little impact. Trade disparities will continue as we teach other nations how to make the things we invent, full time non-skilled work will be harder to find, and we'll make other nations rich as we have numerous unemployed/underemployed and they exploit their labor pool.

It's not just the manufacturing sector that's been hit, it is also the "knowledge workers" whose jobs have been offshored. I have a 4 yr University degree in Computer Science and the job market has been iffy since 2000 / 2001, especially since none of us are getting any younger and IT is a young person's market (because they get paid less). I know a lot of IT people with a lot of education & skills that are also un- / under-employed. I think offshoring jobs - be it manufacturing or high-tech - is a bad idea. Corporations get rich and the cost is no jobs, loss of the middle class along with a lost ability to innovate. With no middle class left, who is going to buy the cheaper products?

Studies also show that statistically those higher on the income ladder are less honest and less empathetic. So You could also correlate this as the dishonest and uncaring getting richer and the honest and sympathetic getting poorer, and it might be a more casually valid connection too.

It's also interesting to look at where the tax dollars are spent. My suspicion is that there is a disproportionate use of tax dollars for interests and concerns of the most affluent. Does someone making under 30k/year benefit from environmental protection legislation as much as someone making 200k/year? probably not since they won't live as long and the money could better improve their quality of life if it was spent on better food for their kids (maybe you noticed poor people can't afford to eat organic). In a similar way international free trade and global geopolitical actions (wars) benefit disproportionately those on the higher income bracket and yet receive a lions share of our tax dollars and government efforts.

Interesting comments with some well thought out arguments. It's kinda of refreshing to see opinions that actually hold some validity as oppose to the arguments that just want to put all the blame of this economic crisis on one particular political party because those are the arguments people hear their friends and family regurgitating from these so-called cable 'news stations' and political talk radio programs. I think ditto heads would be a good label for these types of people with those types of opinions. You all know exactly what I'm talking about. You have skimmed through all the mindless, baseless comments on other blogs, forums, and comment sections of these types of articles. And yes I know it's extremely annoying to read these type of comments on a constant basis over and over again.

I think the economic issues we are facing today is a combo of a lot of the points already made above. I would like to add I personally think it is more by design than what most educated people may suspect. I would go into more detail but I really don't feel like going down that road at this time.

The real issue here is a destruction of US sovernity. When you lose jobs you can't spend on food, goods, homes, etc. Which will lower demand & when we no longer have the top position for goods government will have no choice but to form their NAU which will boost up demand but will lower incomes even more. As for liberty; constitution and the bill of rights we can all say our farewells to them. People are living under an umbrella of fear that is not even real. You people are practically begging to lose your rights. Thomas Jefferson once said when people give up their freedom for a little protection! They wont get nor do they deserve niether. There are too many ignorant people in this country that can't see the writeing on the wall. They think that this just happened by chance but nothing happens by chance. We are programed to spend. we were demoralized by any and all means possible. We are poisoned by processed food, water and unsafe energy extraction techniques. The family unit has been destroyed to increase the job force so they could have more workers and less pay. NAFTA and GATT were used to ship jobs over seas to increase profits even more and the NAU will do the same thing but save them on the shipping. Wake up people, how much has to happen to realize we are being led down a no where road. The US Majority is being exterminated through sickness and starvation. This has been planned since the 70s when OPEC caused the oil shortage. 911 was the beginning of the end of us. I see some of you people think this is not about rich or poor, Haves or have nots. If it were not about haves or have nots we would not be in 150 countries around the world to manipulate their governments and steal their resources! Do you really think that the US government wont do that to their own people? If you are really that nieve then maybe you deserve whats coming. When the next phase starts it will escalate out of control real fast. Food and fuel prices are about to sky rocket. Then when its too expensive for the poor & decent is on the rise is when the sicknesses will start! they will probably say its a terrorist attack but don't believe a word. Its the Elite finishing off the rest of us. Well goodluck all. You might be asking when this will happen. To tell you the truth its up to us all cause the real question is how long can we prevent this from happening. God help us if we allow these things to play out cause don't expect anyone else to! Amen brothers and sisters!!!!!!!!!!!!!!!

The tables used in this article are misleading, because you must look at the qualifications of the workers behind those high paying annual salaries. It is common knowledge that education level and wages earned are highly correlated. Knowing this, your levels of income should read:

Look at it this way and you will see that supply and demand takes over with regards to unemployment. The more education you have, the fewer peers you have going after the same job as you, and you are higher in demand. If your degree is in high demand, you will be hired more quickly, make more money, and retain your job. Unemployment is low for doctors, lawyers, CEO's and Business Tycoons because there are very few of them with respect to the entire population. Look at a corporation, there is one CEO. And probably only and small handful of people who could fill that job with the proper qualifications. But look at the person who only has a HS diploma and dropped out of college after one semester. With respect to the rest of the population, there are many of them. And with respect to the populations of other countries, there are even more with the same qualifications. So if I can pay Pablo $1 to make widgets in Mexico, or pay Sam $6 to make Widgets in America, and shipping is about $0.50 per widget after freight, who am I going to pay to make widgets? Pablo of course.

We are now seeing the results of a nation adamant about getting its children through High School and pushing them to go to college and get four year degrees and then pushing them to get masters degrees. By doing this we have become a specialized, educated, and research oriented economy. Those who decided to not get the schooling and degree, will hit the glass ceilings at work and not move up (regardless of experience and performance), or will just have their job cut.

I have a relative who says that college is for suckers, and dropped out after one semester. He is now unemployed, looking for work and had his house foreclosed on. It's hard to feel bad for him, when I have worked my butt off for eight years to get my BS & MS degrees.

Don't be hating the rich, be informed. We live in a capitalism economy, supply and demand. If there are certain fields in demand in your area, get qualified and go for those! Be pro-active! Your job is your responsibility. Foreign workers in other nations put us Americans to shame, and are now reaping the rewards of their diligence, planning and hard work in school.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.